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Realization (tax)

From Wikipedia, the free encyclopedia

Realization, for U.S. Federal income tax purposes, is a requirement in determining what must be included as income subject to taxation. It should not be confused with the separate concept of Recognition (tax).


Realization is a trigger for calculating income taxation. It is one of the three principles for defining income under the seminal case in this area of tax law, Commissioner v. Glenshaw Glass Co.[1] In that case, the Supreme Court determined that income generally means "undeniable accessions to wealth, clearly realized, and over which the taxpayers have complete dominion." It is also discussed in Helvering v. Bruun, in which the court explains that "the realization of gain need not be in cash derived from the sale of an asset. Gain may occur as a result of exchange of property, payment of the taxpayer's indebtedness, relief from a liability, or other profit realized from the completion of a transaction."[2] That is a checklist of types of realization triggers, but it is not exhaustive. Also, finding something of value can be a realization trigger, as the case of Cesarini v. United States demonstrates.[3][4]

Problems in line-drawing

Realization is generally straightforward, but there are instances at the margins in which the moment of realization can be tricky. One example of a tricky realization situation that has given rise to substantial debate is the 62nd home run ball hit by Mark McGwire. The ball was retrieved by a grounds crewman, Tim Forneris. Forneris gave McGwire the ball immediately after the game amidspeculation that the ball could fetch at least $1 million in an auction. Do either McGwire or Forneris have gross income? Did Forneris realize income when he caught the ball? Tax professors typically teach that it would be income to Forneris when he caught it, because it is treasure trove. As a result, the person who catches a home run ball would generally be required to include the value of the ball in income in the year in which the catch took place, whether or not the person sold the ball and whether or not he gave it back to the player or the team. That is an unpopular result, and the Internal Revenue Service (IRS) issued Ruling 98-56 to change the result in the face of public pressure but only in the case in which the player returned the ball. Under that theory, an individual who catches a record-breaking ball has income at the very moment he possesses it unless he immediately disclaims possession by returning it. If he does not do that, the only remaining question is what value he ought to include in income. Because the treasure trove rule is that the value at the time the ball is "reduced to possession," the answer must be a reasonable estimate of its market value, whether or not the recipient sells the ball.[citation needed]


  1. ^ Commissioner v. Glenshaw Glass Co., 348 U.S. 426 (1955).
  2. ^ Helvering v. Bruun, 309 U.S. 461 (1940).
  3. ^ "Tax Appraisal". Retrieved 3 April 2019.
  4. ^ Cesarini v. United States, 428 F.2d 812.

See also

This page was last edited on 3 April 2019, at 11:37
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